Soybeans are one of the world’s most-common feed crops. The oilseeds are crushed to make high-protein meal that’s sold to livestock producers. The dry conditions gripping the heart of Argentina’s farming region are a key price driver because the country is the No. 1 exporter of meal. For meat producers like Tyson Foods Inc. and Sanderson Farms Inc., tighter supplies could end up raising feed costs at a time when Americans are projected to eat more meat than ever before.

The drought has already pushed most-active futures of soy meal up 19 percent in 2018. That’s the largest gain among the 22 raw materials tracked by the Bloomberg Commodity Index.

Shrinking Crop Prospects

The U.S. Department of Agriculture on Feb. 8 cut its outlook for Argentina’s soybean crop to 54 million metric tons from 56 million projected in January. Local estimates are even lower. The Buenos Aires Grain Exchange predicts 50 million, while AgriPac consultancy forecasts 47.2 million. If the last number becomes reality, it would be the smallest harvest since 2012, USDA figures show. The exchange said Feb. 15 that most beans are in poor or very poor condition.

On the Chicago Board of Trade, soy meal for May delivery reached $381.20 per 2,000 pounds on Friday, a record for the futures contract that debuted in December 2015.

Hedge funds are positioning for more gains. Money managers increased their net-long holding by 37 percent to 70,991 futures and options in the week ended Feb. 13, according to U.S. Commodity Futures Trading Commission data released Friday. That’s the highest in almost a year. The figure measures the difference between bets on a price increase and wagers on a decline.

China’s appetite for soybeans and meal has grown over the last several years as its expanding population adds more meat to the average diet. The country’s robust consumption helps magnify any crop-production losses, even in an era of ample grain stockpiles, according to Matt Connelly, an analyst for Hightower Report in Chicago.

Adding to the supply tightness, growers in Argentina have limited crop sales amid expectations of lower export taxes and a decline for the peso, Heather Jones, an analyst for Vertical Group, said in a report Feb. 12. The nation’s meal exports in December fell to the lowest since 2013. Declines for the local currency favor commodity shipments that are priced in dollars.